Several take-aways from the China-Africa Summit

The China-Africa summit has concluded with two major promises from China’s side, in particular USD 60 billion in investment into Africa and that market forces will govern China-market economic relations. All of these good intentions are welcome for a continent with the fast growing population in the world and with enormous investment needs. It is surely also welcome from China’s side as Trump-led trade war is propelling China’s interest in finding other export markets as well as investment opportunities. In fact, Africa is an important region for China’s investment as it accounts for 30 to 50 percent of the China’s total overseas project investment over the past years. This note offers some takeaways from this Summit drawing from the recent history of China’s investment in the African continent. - Lending (through project finance) rather than foreign direct investment (FDI) has so far dominated China’s investment flows in the region. In other words, most of the projects that China has embarked into are debt financing for Africa with consequences for debt sustainability. - As for China’s FDI into Africa, both mergers and acquisitions (M&A) and Greenfield investment is small. This is especially the case if real estate transactions are excluded. - China’s project finance in Africa does not look as market driven as claimed since the involvement of Chinese private companies is minimal. Virtually all contracts are from state-owned companies in the transportation and energy sectors.